After four years of studying, and a job search that felt like it took just as long, you’ve finally landed a job. It might not be your dream job, but it’s a start — and you’re collecting a paycheck.
And for many young people, that first “real” paycheck seems like a major windfall. Sure, Uncle Sam might have taken a larger bite out of your earnings than you expected, but still, there’s a good chance that this first check is the biggest payday you have ever had. Because of that, there may be the temptation to go on a spending spree.
Before you pick up the tab for everyone at the bar or go on a shopping spree, it’s important to stop and think about the best ways to use that money. The decisions that you make now that you’ve started earning a salary can have a profound impact on your financial health now and even into the future. Bad decisions that leave you with a mountain of debt can affect your ability to get a mortgage or credit in the future, or even retire comfortably, while good decisions can put you on the road to financial freedom and prosperity.
For that reason, when you get your first check, you should consider the following.
1. Invest in Your Company’s Retirement Plan
If your company offers any sort of retirement plan, join it — especially if your employer offers matching contributions. You may not be able to swing the maximum contribution right out of the gate, but contributing even three to five percent of your salary can start a nice little nest egg for your future.
The other reason to start contributing to a company retirement plan from day one is that when the contribution is taken out automatically from your paycheck, you never miss it. If you try to start saving later, it will be more difficult to adjust your budget around your plan deposits. Remember, even if you eventually leave this job, you can roll over your balance into a new plan, so there’s no reason not to join.
2. Educate Yourself
You might be thinking, didn’t I just finish educating myself? True, you may have a college degree, but unless you majored in finance, you probably have a lot to learn about investing and money management. Once you start earning money, it’s important to do your homework about investing and wealth building so you can determine the best ways to grow your own net worth.
For example, you may wish to learn more here about trend investing, and how predefined trend searches can help you pinpoint the companies you should invest in. Read books, check out websites and blogs, and consider taking beginner investment courses so you can make well-informed decisions about how to maximize your money.
3. Invest Cautiously
While conventional wisdom and financial planning advice often encourages younger investors to be aggressive in their 20s, that strategy is usually best reserved for your company retirement plans. If you are investing as an individual, your first foray into the market should be slightly on the conservative side — unless, of course, you have plenty of capital to spare. Some advisors recommend investing in preferred stocks, which are those offered by major corporations and sold directly to investors without a broker, because they offer more stable dividends and fewer fluctuations than common stock.
4. Look for Unique Investments
While most people think of the stock market when it comes to investing, there are other ways you can invest as well, which may result in returns equal to or even greater than that of the stock market. Contributing even a small amount to crowdfunded projects, for example, can result in significant returns. Investing in wine, precious metals, or real estate can also result in a nice source of income. Of course, you need to do your homework, and not write a check for every “opportunity” that comes your way, but in some cases, getting in on the ground floor today can pay off big down the road.
Getting your first paycheck is exciting, but it’s more than just some cash to pay rent and buy groceries. Devise a plan to make your money earn even more money for you, and enjoy financial freedom when you need it most.